EU fails to reach economic deal after 16 hours negotiation

The European Union is trying to reach a point to set an agreement on the measures to mitigate the economic impact of the COVID-19 pandemic on the worst-affected member states

The European Union Economy and Finance ministers have failed to reach an agreement on a set of measures to mitigate the economic impact of the covid-19 pandemic on the worst-affected member states despite more than 16 hours of negotiation.

The Eurogroup said it would meet again on Thursday to resume talks and reach a consensus, Efe news reported.

"After 16h of discussions we came close to a deal but we are not there yet. I suspended the Eurogroup & continue tomorrow, Thursday," Mario Centeno, president of the Eurogroup, tweeted.

"My goal remains: A strong EU safety net against the fallout of Covid-19 (to shield workers, firms & countries) and commit to a sizeable recovery plan," the Portuguese finance minister added.

The main disagreements stem from differing points of view on the conditions for accessing soft loans under the eurozone rescue fund, the European Stability Mechanism (ESM).

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Mutualized debt known as corona bonds

Member states also disagree on whether to issue mutualized debt known as corona bonds as part of a broader package to mitigate the economic recession caused by the pandemic.

Deep divides between northern and southern countries persisted with The Netherlands pushing for ESM aid to be issued under tough economic conditions for recipient countries.

Hard hit countries like Italy, on the other hand, want these requirements to be eased as much as possible so it can cover the economic damage of the outbreak more cheaply.

The struggle between The Hague and Rome was the main sticking point during negotiations on Tuesday night.

"NL was and remains against the idea of Eurobonds, we think this will create more problems than solutions for the EU," Minister of Dutch Finance, Wopke Hoekstra, said on Twitter at the end of the meeting.

"We would have to guarantee debts of other countries which isn't reasonable. The majority of the Eurogroup shares this view and does not support Eurobonds."

"The ESM is a lender of last resort when countries are in deep financial trouble. In our view the use of this budget has to come with some form of conditions," Hoekstra added.

Germany, Austria or Finland also oppose the issuance of coronabonds, which would require all EU member states to help pay off mutualized debt, even in the event one state could not meet payments.

But despite the apparent aversion to mutualized debt, a dozen countries have been pushing for coronabonds to be issued, including Spain, France and Italy.

In a bid to unblock the situation, Germany and France rallied on Wednesday and presented a plan for a recovery fund based on the issuance of debt backed by guarantees from the member states.

"With Olaf Scholz, we call on all European states to be equal to the exceptional stakes and secure an ambitious deal," French minister Bruno Le Maire said after the meeting.

The German Finance Minister echoed Le Mair's commitment to resolving the deadlock saying:

"In this difficult hour, Europe must stand together. Together with Bruno Le Maire, I therefore call on all euro countries not to refuse to solve these difficult financial questions and to enable a good compromise - for all citizens."

A third point that remains to be agreed upon is the Commission's proposal to establish a temporary fund to deal with rising unemployment levels under the SURE instrument which is designed to mitigate the risks of unemployment in the case of an emergency.

The instrument will provide financial assistance, in the form of loans of up to €100 billion in total.

Some member states are keen the application of the loans is strictly provisional and limited to mitigating the effects of the coronavirus crisis so as not to set a precedent for a broader mechanism, such as a community Unemployment Reinsurance.

Related topics : Coronavirus